On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. The seller uses the perpetual inventory system. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Multiple choice question.

Debit Sales Returns and Allowances $150; credit Accounts Receivable $150.

Debit Accounts Receivable $500 and credit Cash $500.

Debit Accounts Receivable $500; credit Sales Returns and Allowances $500; credit Merchandise inventory $150; and credit Cost of Goods Sold $150.

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.